Alibaba The House That Jack Ma Built

on six leading e-commerce sites, including Taobao and Tmall. The SAIC
found that of its sample purchases on Taobao only 37 percent were
considered authentic, adding, “For a long time, Alibaba hasn’t paid enough
attention to the illegal operations on its platforms, and hasn’t effectively
addressed the issues.” Worse still, the report asserted that “Alibaba not only
faces the biggest credibility crisis since its establishment, it also casts a bad
influence for other Internet operators trying to operate legally.”

When the media picked up the story, Alibaba’s shares fell by more than
4 percent.

Alibaba was furious, questioning the SAIC’s methodology and its
motivations. Remarkably, both the SAIC’s report and Alibaba’s response to
it were on full view to the public. In China, discussions between the
government and companies are typically conducted in private, as the
opacity of PBOC’s intentions and interactions during the Alipay crisis had
already illustrated. But here was one of China’s largest companies directly
criticizing the government. More spectacularly, a posting by a Taobao
customer service representative on the company’s official social media14
account even named the individual SAIC official15 involved: “Director Liu
Hongliang! You’re breaking the rules, stop being a crooked referee!” The
post continued, “We are willing to accept your God-like existence, but
cannot agree with the double standards used in various sampling procedures
and your irrational logic.”

Although the post was deleted by Alibaba a few hours later, it was
replaced by an official communication that was still remarkable for its
frankness: “We are open to fair supervision, and are opposed to no
supervision, misconceived supervision, or supervision with malicious
aims.” Alibaba also indicated that it had filed a complaint against the SAIC
official for misusing procedures and using erroneous methods to get a “non-
objective conclusion,” adding, “We believe Director Liu Hongliang’s
procedural misconduct during the supervision process, irrational
enforcement of the law and obtaining a biased conclusion using the wrong
methodology has inflicted irreparable and serious damage to Taobao and
Chinese online businesses.”

For Alibaba the timing of the dispute was particularly inopportune,
coming one day before16 the release of its quarterly earnings report. Alibaba
reported sales of 40 percent,17 but investors were unimpressed by its
numbers, sending its shares down a further 8.8 percent. Tens of billions of

dollars had been wiped off its valuation in just two days. In the earnings
call, Joe Tsai, now executive vice chairman, fought back: “At Alibaba we
believe in fairness. We support rigorous supervision of our company, but we
also feel compelled to speak out when there are inaccurate and unfair
attacks being leveled against us.”

And the tit-for-tat wasn’t over yet. SAIC then disclosed that it had kept
private the details of the July 2014 meeting in order not “to impede
Alibaba’s preparations for its initial public offering.” This was particularly
unhelpful to the newly public Alibaba because it raised the ugly possibility
that management had failed to disclose the dispute to investors ahead of its
IPO, something that should have formed part of the (already voluminous)
risk factors section of the prospectus. But Alibaba denied the accusation,
saying it neither had prior knowledge of a white paper nor had requested
SAIC to delay publication of any report, adding that meetings with
regulators were a normal occurrence. Unsurprisingly all of this triggered a
class-action lawsuit against Alibaba the following week.

Finally, the mudslinging had become too much. SAIC deleted the report
from its website. Jack flew to Beijing to meet with the regulator’s head,
Zhang Mao.18 There the two men, in public at least, buried the hatchet. Jack
promised to “actively cooperate with the government and devote more
technology and capital” to rooting out the sale of fake goods. Zhang Mao
praised Alibaba for its efforts to safeguard consumer interests and said
SAIC would look to develop new tools to oversee the e-commerce sector.

Looking back at the incident, one former senior Alibaba executive told
me the company would have been better off not responding to the SAIC
announcement in the first place: “Alibaba is still relatively young, but to
some they’ve become such a big monster. Even the government doesn’t
know how to manage them. In the future, there will be a lot of conflicts.
That’s natural. Because this government has never had to deal with a
company this influential.”

For Alibaba, and any private company, the Chinese government itself is
a multiheaded hydra of agencies, often competing with one another for
influence, licensing fees, or other forms of rent to justify their existence,
often lacking sufficient central government support to finance their
operations. These agencies exist at both the national level and at multiple
levels below. Some are replicated all the way down through the provinces to
municipalities and finally to the level of rural counties.

Jack often repeats a line about his relationship with the Chinese
government: “Fall in love with the government, don’t marry them—respect
them.” With so many departments, if he were truly to marry the
government, he’d end up a polygamist. Jack revealed19 that Alibaba had
hosted in 2014 alone over forty-four thousand visits from various
government delegations in China.

Yet, short of marrying, even respecting the government can be a
challenge. Jack once explained to a friend that he was never really sure of
his schedule from one day to the next. If the party secretary of Zhejiang, for
example, requested he travel with him as part of a business delegation to
Taiwan, then he would have little choice but to make the trip. Owning a
Gulfstream G650 jet is quite a privilege, but unlike his tycoon peers in the
West, for Jack there is always a lurking sense of not knowing where to tell
the pilots to fly it.

Jack receives Xi Jinping, the Communist Party Secretary of Shanghai, at Alibaba in Hangzhou, July
23, 2007. Alibaba

Respecting the government also involves cultivating good relations with
a wide range of officials, including future leaders of the country who might
one day hold huge sway over the company. A typical feature in the lobby of
any large company in China, whether state or privately owned, is a wall of
photos memorializing meetings between the boss and various government
dignitaries. Alibaba is no exception. At the entrance to its VIP visitor suite
there is a photo20 from July 2007 of Jack welcoming Xi Jinping to Alibaba.

Xi today of course is president of China but back then he was Communist
Party secretary of Shanghai.21

Entrepreneurs in China can never eliminate the risk for their business of
arbitrary regulations or actions. Instead they can try to shield their
companies by helping the government do its job.

Part of the SAIC’s job is to stem the flood of pirated goods.22 Online or
offline, fighting piracy is like a game of Whack-A-Mole: Whack one
molehill, and the moles will pop up somewhere else. To turn the page on its
dispute with SAIC, Alibaba increased the number of staff dedicated to
combating counterfeiting, from 150 to 450 people, including a team of
“secret shoppers” to root out fakes. Alibaba operates a “three strikes you’re
out” system to sanction vendors. Selling the same fake good on three
occasions23 gets a merchant kicked off the platform. To weed out merchants
who later resurface with another name—the “whack a mole” problem—
Alibaba has adopted some creative countermeasures. Similar to the “proof
of life” tactics used by hostage negotiators, the company asks merchants to
prove their identities by taking a photo of themselves with their ID card and
today’s newspaper. They may even ask them to adopt a particular “pose of
the day” in the photo as an extra security measure.

At a closed-door dinner in London in October 2015, Jack summed up
the problem as follows: “Maybe one percent of the merchants on our
platform are bad guys.” Yet with nine million merchants on Taobao, that
works out at ninety thousand “bad guys.” An investor present at the dinner,
David Giampaolo, summarized Jack’s message that evening: “He is focused
on solving the problem. However, few people, especially overseas,
appreciate the enormity of the task.”

In Beijing on Singles’ Day 2015, Jack went further: “Every consumer
that buys one counterfeit on our site, we lose five customers. We are also
victims of [counterfeits]. We hate this thing. . . . We have been fighting for
years, but we are fighting human nature, human instinct.” Explaining that
piracy had been rampant in China’s offline retail sector for the past thirty
years, Jack added, “We are fighting online and helping fighting offline. We
have two thousand people working on it, we have fifty-seven hundred
volunteers working on it. With special task forces, with the technology we
have, we are making progress. I think the opportunity is whether we should
work together to fight against these thieves. We are running a platform for
more than ten million businesses. They [the pirates] are tiny; they are

everywhere.” Some of Jack’s rivals are sympathetic to his predicament. One
told me: “When you’re managing a platform with nine million merchants
on it, you’re running a country.”

A key part of Alibaba’s response is its Internet Security Team, headed
by ex-cop Ni Liang. The team operates a “notification and take down”
system that merchants can use to flag fake products24 being sold on
Alibaba’s sites. Using techniques such as “price point analysis,” brand
owners can identify large quantities of high-margin items such as luxury
bags being sold at impossibly low prices. But this method doesn’t work
well for high-volume, low-margin items such as soap or shampoo, where it
can be hard to sort legitimate products from fakes. So Alibaba is looking to
the power of Big Data: Company names, addresses, trading history, and
bank accounts can all be useful to establish patterns of distribution and go
after infringers. The power to deny them the use of Alipay as a payment
tool on other platforms can also be an effective deterrent.

The reality is that, for piracy, e-commerce is both part of the problem
and part of the solution. The Internet is more effective at distributing fake
goods than offline methods, but also more effective at identifying and
combating infringers.

Taobao, dominated by mostly mom-and-pop store owners, is less easy
to police than Tmall. So with events like the November 11 Singles’ Day,
Alibaba is spending more marketing dollars on Tmall than Taobao. Tmall
sets a higher bar25 for merchants to trade. Also Alibaba generates
commission fees on Tmall, meaning that shifting business away from
Taobao makes more money for Alibaba as well.

But not all brands are convinced. A few months after the SAIC
controversy the American Apparel & Footwear Association (AAFA), which
represents more than a thousand brands, was again pushing for Taobao to be
added back to the USTR’s list of notorious markets; the association
complained about the “rampant proliferation” of fake goods on Taobao and
the “slow, sluggish, and confusing systems” that Alibaba has put in place to
remove them. Yet despite AAFA’s action, a number of its members,
including Macy’s and Nordstrom, continue to work closely with Alibaba on
initiatives including Singles’ Day, revealing a lack of consensus about the
way forward. In November 2015, Juanita Duggan, the person who as CEO
and president had spearheaded the complaint, resigned from her post.

Alibaba faces criticisms from some brand owners in Europe, too. In
May 2015, Kering, the French luxury goods holding company of brands
including Gucci and Yves Saint Laurent, filed a lawsuit against Alibaba
alleging violations of its trademarks and racketeering laws. Part of the
complaint included allegations that when customers enter the word Gucci in
Alibaba’s search engine, it returns links to fake products branded “guchi” or
“cucchi.” Alibaba is fighting the suit, countering that Kering has “chosen
the path of wasteful litigation instead of the path of constructive
cooperation.” In an interview on Singles’ Day 2015 with Bloomberg, Jack
was even blunter, revealing his frustration with lawyers: “Don’t send
lawyers. These lawyers don’t understand business; they don’t understand e-
commerce.” The following month, Alibaba stepped up its IP enforcement
efforts by appointing Matthew J. Bassiur as head of Global Intellectual
Property Enforcement. Bassiur had previously overseen anticounterfeiting
operations at the pharmaceutical company Pfizer after several years with
Apple Computer. Prior to his corporate career, Bassiur served as a federal
prosecutor in the U.S. Department of Justice.

Fake goods weren’t the only issue weighing on Alibaba’s share price
after its IPO. Some investors fretted about fake trades, too. Also known as
“brushing,” fake trades involve merchants shipping empty boxes to ghost
customers to boost their rankings.26 Local brands—particularly those in
highly competitive sectors like apparel, cosmetics, and electronics goods—
are the main culprits. Rather than carrying out the fake trades themselves,
these merchants typically hire “click farming” companies to generate the
fake purchases for them. They can also hire the same click farms to
generate fake, positive product reviews to influence real purchasers. By one
estimate, four click farms27 interviewed each claim to control at least five
million Taobao buyer accounts. These firms no doubt exaggerate their
influence—to boost their appeal to potential customers—but collectively
the click farm companies claim that in 2015 they accounted for double digit
percentages of the total merchandise volume of Singles’ Day purchases in
2015. Alibaba and other e-commerce players are on the lookout for these
companies—monitoring traffic and transaction patterns to root out
suspicious activity. (Although the click farms claim they can circumvent
these attempts, they assent that these methods are not rigorously applied.)
As with the battle against fake goods, Alibaba and other e-commerce
players are engaged in a cat-and-mouse game. Like piracy, brushing cannot

be eliminated entirely, unless the algorithms that rank merchants based on
sales volume are abandoned. The e-commerce players can, and do, act to
increase the costs of bad actors. Tmall’s “anti-brushing” systems monitor
behavior to establish if a purchaser is a real person, for example, by
ensuring that the session involves clicks on a range of products—suggesting
actual browsing of goods on sale—and sufficient time spent on each web
page, concluding with a purchase deemed to be a reasonable amount for one
person to make. In response, the click farms have increased the
sophistication of their service, charging as much as thirty yuan ($4.70) per
faked order, compared to the typical range of ten to twenty yuan ($1.56–
3.12) per order, depending on the costs involved, such as commissions,
payment fees, and generating fake logistics information. Tmall is more
prone to brushing than Taobao, as the competition to secure high-ranking
sales—and the publicity these can generate—in promotions like Singles’
Day is so intense.

Alibaba’s e-commerce platforms have become so large that policing the
huge volume of goods and transactions is becoming ever more complex. Yet
this size is also Alibaba’s great strength. Merchants on Alibaba’s sites are
increasingly willing to spend money to upgrade their stores. Even
merchants who prefer to sell goods on other sites still keep a presence on
Taobao because it means consumers trust them more.

Competitors in the Wings

Nevertheless Alibaba is facing rising competition in a number of categories
like clothing,28 cosmetics,29 books,30 and food.31 To buttress its position in
electronics and electrical appliances, Alibaba has even started to make
investments in traditional retailers as part of the new trend, mentioned
earlier, called “omni-channel” or “online to offline,” abbreviated as “O2O.”
In August 2015, Alibaba shelled out more than $4.5 billion to buy a stake32
in Suning, an electronics and white goods retailer. But some analysts
questioned the logic of buying into a company with more than 1,600 stores
across the country that, like Best Buy in the United States, were at risk of
becoming merely expensive showrooms used by customers to try out
products that they would later buy online. Alibaba made the investment in
Suning in part to counter its biggest competitor in e-commerce, a well-
funded company called JD.com,33 which went public in the United States

four months before Alibaba. JD is a threat to Alibaba in part because it
represents a competition of ideas. Unlike Alibaba, JD is more closely
modeled on Amazon, purchasing and selling its own inventory. In addition,
while Alibaba has kept one step removed, JD owns and operates its own
logistics network. While Alibaba argues that JD will never rival it in scale
due to the costs of owning inventory and shifting physical goods, JD
counters that its model ensures a higher quality of product and speed of
delivery to its customers.

JD clearly riles Jack. In early 2015 he turned his guns on the founder of
JD, Richard Liu. Although he spoke the words to a friend in what he
thought was confidence, Jack’s criticism of the company was posted on
social media: “JD.com will eventually be a tragedy and this is a tragedy I
have warned everyone about from day one. . . . So I’ve told everyone in the
company, don’t go near JD.com.” Soon after the incident, Jack apologized,
joking, “The next time I have a conversation, it’ll be in a public bath.”

The Big Two

Another reason why Jack has trained his guns on JD is that it enjoys the
backing34 of Tencent, Alibaba’s main Internet rival. As Alibaba extends
into new territory beyond e-commerce, it is increasingly bumping into
Tencent, whose valuation in 2015 at times surpassed that of Alibaba.
Tencent makes most of its money in online games but is a threat to Alibaba
because of the phenomenal success of WeChat,35 the mobile application it
launched in 2011 that has amassed more than 650 million regular users.
WeChat is the primary mobile messaging platform in China, benefiting
from—and even driving—China’s smartphone boom. WeChat has been
described36 as “one app to rule them all.” Without WeChat a cell phone in
China loses much of its utility. The WeChat app effectively has made the
contact book redundant. Most users check the application at least ten times
a day. But WeChat is about far more than chat. Chinese consumers use it37
for a much wider range of services than their peers in the West (who use
Apple’s iMessage, Facebook’s Messenger, or WhatsApp). The power of
Tencent’s ability to innovate was demonstrated most dramatically in 2014
with WeChat’s Lunar New Year “red packet” (hong bao) campaign. In just
two days, WeChat users sent out more than 20 million virtual envelopes38

of cash. Jack even compared the psychological impact of WeChat’s
campaign on Alibaba to Pearl Harbor. Alibaba fought back in 2015 but
despite doling out $100 million in cash-and-coupon promotions, it was able
to rack up only a quarter of the red packets sent by WeChat users.

WeChat exposed a critical gap in Alibaba’s armory that it tried to close
with its own mobile social app, Laiwang. Throwing everything it could at
promoting Laiwang, Alibaba even required every employee to sign up one
hundred users in order to qualify for their annual bonus. But Laiwang
launched two years after WeChat. By then it had already lost the battle.
Today even Alibaba’s senior executives use WeChat, resorting to Laiwang
only for official communications with colleagues.

Alibaba is spending billions of dollars on investments, acquisitions, and
marketing to shore up its mobile strategy, from investing in its YunOS,39 to
buying stakes in Sina Weibo,40 the Twitter-like service, and Meizu, a
smartphone manufacturer, to acquiring UCWeb, China’s leading mobile
browser company,41 and AutoNavi, a leading online mapping company to
boost Alibaba’s position in location-based services. Alibaba has already
shifted a lot of its core business to mobile. Half of all purchases made on
Alibaba’s websites are made on mobile devices. But Alipay, the leading
online payment provider in China, is Alibaba’s most important asset in its
rivalry with Tencent to tackle the next frontier: the mobile wallet.

Control the wallet, the thinking goes, and you control the battlefield for
a vast array of new opportunities beyond e-commerce, with financial
services being the most lucrative. Alibaba’s runaway success with the Yu’e
Bao (meaning “leftover treasure”) mutual fund is one example. But online
banking is another. Alibaba is actively pushing MYbank. Tencent is
responding with WeBank, which has already started to issue consumer
loans42 within fifteen minutes to individuals over their mobile phones, in
amounts ranging from twenty thousand to three hundred thousand yuan
(from $3,100 to $31,000).

Other fronts are also opening up in the Alibaba versus Tencent conflict,
including proxy wars between firms backed by the two companies. In 2014,
the contest over Uber-like ride-booking apps became what one analyst
described as “the first battle in the world war of the Internet.” Alibaba
backed a company called Kuaidi Dache43 while Tencent backed its rival,
Didi Dache44 in a conflict that raged out of control with $300 million
poured in to fund tips and marketing subsidies. The battle became so

intense that Kuaidi even offered taxi drivers a free case of beer for referring
fellow drivers. As the red ink flowed on both sides, a truce was called in
early 2015 when the two transportation companies merged in a $6 billion
transaction to form Didi Kuaidi, although they retained the two separate
operating units. With a $16 billion valuation and $3 billion in new capital,
the new entity took on Uber, which had thrown its lot in with Baidu.45 The
“taxi wars” have even taken on international proportions, as Alibaba,
Tencent, and Didi Kuadi have all invested in Lyft, Uber’s principal U.S.-
based competitor.

In 2015, Alibaba and Tencent also decided to combine two other
proxies, Groupon-style companies Meituan and Dianping, in a $15 billion
merger that some saw as also directed at Baidu and Nuomi, its proxy. Baidu
also lacks a meaningful presence in payment, in contrast with the
dominance of Alipay and Tenpay.

Alibaba and Tencent are so powerful today that the talk of the “Big
Three” (with Baidu) is beginning to shift to talk of a “Big Two.” But if the
trend of Alibaba and Tencent combining forces to create dominant proxies
continues, there is a risk that consumers would be alarmed if subsidies are
withdrawn or fees increased for popular services like booking rides or
ordering food, prompting intervention by the Chinese government to restrict
their market power.

No doubt mindful of the risks, since the SAIC incident, Alibaba appears
to be trimming its sails ever closer to the prevailing government winds. In
September 2015, Alibaba elevated its Beijing office to become its “second
headquarters” along with Hangzhou. The symbolism of a powerful
company in southern China announcing a new “coheadquarters” in Beijing
is obvious, although the city is much more than just a political center—it is
an essential business hub as well.46 There are also practical reasons for the
move. Alibaba describes adding Beijing to Hangzhou as its “twin hub” a
strategy to sharpen its edge in northern provinces in the face of increasing
competition: By the end of 2015, JD.com had surpassed Tmall by some
estimates to become the leading e-commerce player in Beijing.

Upgrading its office in Beijing is important for recruitment, too.
Already home to over nine thousand employees, Beijing has a deeper pool
of prospective talent for the company to draw on. The capital is home to
some of the country’s most prestigious universities and about one million
students. In the competition for top talent, offering the ability to work in

Beijing reduces the risk of losing candidates who prefer not to move to
Hangzhou,47 which by comparison is a much smaller, provincial city.

Yet on Singles’ Day 2015, there were signs, too, that Alibaba is stepping
up its efforts to cultivate government support. Hours before the launch of
Singles’ Day, Alibaba reported that Chinese Premier Li Keqiang’s office
had contacted Jack “congratulating and encouraging the creation and
achievement of the 11/11 event.” As the day began inside the Water Cube,
the upper-right section of the screen that was recording transactions on
Tmall was reserved for a map and a data feed displaying the purchases in
countries like Belarus and Kazakhstan, two of sixty-four countries and
regions along the “One Belt, One Road” (OBOR48), also known as the
“Belt and Road” initiative, a centerpiece of President Xi Jinping’s foreign
and economic policy.

Whatever the risks, Jack professes confidence in Alibaba’s future.
While the government can play a role in stimulating exports and boosting
investment in the economy, he stated, “Consumption is not done by
government—it’s done by entrepreneurship and the market economy. So,
we have a great opportunity. Now it’s our turn, not the government’s turn.”

Alibaba is going all out to grab the opportunity available to the private
sector. In recent years, Alibaba’s deal making has been so frenzied that one
journalist friend in Beijing complained to me that he had little time to cover
anyone else and had spent many an evening or weekend writing up the
company’s latest conquest. Covering Alibaba is complicated because the
deals often involve a web of relationships, including those linked to Jack’s
own private equity fund, Yunfeng Capital.

Yunfeng: Billionaire’s Boys Club

Yunfeng is a private equity company in which Jack holds an approximate 40
percent stake and serves as a partner.49 Yunfeng50 was launched in 2010 by
Jack and cofounder David Yu51 and others.52 It is a sort of “billionaire’s
boys club,” something that the fund promotes as a core strength, calling
itself the “only private equity fund launched by successful entrepreneurs
and industry luminaries.” To those who criticize deal making between
Alibaba and Yunfeng, Yunfeng is at pains to point out that Jack plays no
role in the investment decisions of its various funds. Alibaba emphasizes
that Jack will forgo any gains made from his involvement in Yunfeng.

The fact that most of the billionaires involved in Yunfeng have roots in
Zhejiang or Shanghai is instructive. Just like the “cluster cities” in Alibaba’s
home turf, these entrepreneurs have a deep-seated tendency to club together.
Now “investment clusters” are emerging in China’s New Economy, too,
with Alibaba the most prominent of all. The company can make the case
that when buying Yunfeng-invested companies53 Alibaba is investing in
companies that Jack already knows, making the fund a form of advance due
diligence.

Yet each new deal struck between Alibaba and Yunfeng-related
companies introduces further complexity,54 potentially obscuring the true
nature of Alibaba’s relationships with the outside business world.

Is this the way Alibaba will maintain its competitive edge and
innovative capacity? If transactions between Alibaba and Yunfeng-invested
companies are not carefully explained, and the valuations clearly justified,
public investors in Alibaba might not be fully aware of the hidden risks
involved. This concern, amid some indications of tension between Yunfeng
and Alibaba’s in-house M&A team, appeared to have prompted Jack to
relinquish his role as an executive55 in Yunfeng, maintaining only a passive
interest as an investor56 in the fund.

During its IPO road show Alibaba emphasized three central growth
drivers for the future: cloud computing/Big Data; expansion into rural
markets; and globalization/cross-border trade.

Three Core Drivers

Cloud computing is an obvious direction for Alibaba. Investors in Amazon
value highly the “virtual” revenue streams of its Amazon Web Services
business. Although for Alibaba cloud services represent only 3 percent of
revenues today, it is investing over $1 billion to expand them. Alibaba also
talks often about the shift from the information technology era to a data
technology era, “from IT to DT.” Alibaba looks to “DT” to help toward
another favorite buzzword for the company: “C2B,” or “consumer-to-
business.” This is the idea that DT, including Big Data, can help Chinese
manufacturers improve communication throughout the supply chain to
predict demand, potentially eliminating inventory. By exploiting the
information flowing across Alibaba’s e-commerce, logistics, and finance
businesses—for example predicting consumer trends and investment

opportunities—the company hopes to leverage the “iron triangle” to even
greater effect. Aliyun, Alibaba’s cloud computing business, operates data
centers in Beijing, Hangzhou, Qingdao, Shenzhen, Hong Kong, and Silicon
Valley as well as a newly established international hub in Singapore. The
company plans, according to its president, Simon Hu, “to overtake Amazon
in four years, whether in terms of customers, technology, or worldwide
scale.”

In rural markets, Alibaba hopes to unlock new tiers of consumers and
merchants. China is home to more than 700 million rural residents, but only
one-quarter are online. As Internet and mobile penetration increases,
Alibaba is opening up kiosk-like service centers in rural areas, committing
over $1.6 billion to the effort.

The first pilot county project for Alibaba’s “Rural Taobao” initiative is
Tonglu, the same county where Jack’s U.S. adventure began, and the
birthplace of the country’s major private courier companies. Alibaba’s own
research arm, AliResearch, predicts that rural online shopping will reach
460 billion yuan ($72 billion) by the end of 2016.

Cracking this market is not easy, since it’s complicated by poor logistics
and the lower levels of education of rural residents.

Former Alibaba.com CEO David Wei believes that for the group to “go
rural” is more critical than for it to “go global.” “If they don’t get into India,
Alibaba is still Alibaba. But if they miss the countryside in China, home to
six hundred to seven hundred million people, then another Alibaba could
emerge.” Alibaba’s rival JD.com has launched its own rural initiative
—“Wildfire of a Thousand Counties”—and its core products such as
washing machines and refrigerators are among the most craved items by
countryside dwellers.

In any case, Alibaba has little choice but to “go rural.” China’s State
Council has unveiled a major new initiative to promote e-commerce in the
countryside—echoed by Premier Li Keqiang’s “Internet +” vision—and
after the SAIC debacle, Alibaba can’t afford to be seen as unsupportive. In
July 2015, Jack led a delegation of Alibaba executives to Yan’an in Shaanxi
Province. This rural location has tremendous significance in China as it lies
near the end of the route of the Long March,57 and served as a key base
from 1936 to 1948 for the Communist Revolution. Jack’s delegation
included over thirty senior Alibaba executives including Polo Shao (Shao
Xiaofeng), a former criminal investigator who is senior vice president and

director for the Office of the Chairman at Alibaba Group and is also
believed to serve as secretary of the Communist Party committee of the
company.

In discussions with local Communist Party secretary and government
officials, the delegation explored ways Alibaba could help promote
economic development in the area, from establishing data centers to
offering loans to local entrepreneurs to promoting the sale of locally grown
apples. But Jack also used the visit to attend a lecture given by local
Communist Party officials, after which he said that he just wanted to “come
and take a look. The conditions were extremely hard in Yan’an at that
time,” and that he was keen to learn how “the Communist Party could stick
to revolution romanticism and revolution heroism under such conditions.”

Such speeches are of little help in promoting the third of Alibaba’s core
drivers, expanding in overseas markets. Yet in doing so Alibaba is also in
step with the Chinese government’s call to “go global,” encouraging
Chinese companies to go beyond simply exporting to extending their
operations and influence overseas. This is nothing new for Alibaba, a
company that started out with an international orientation in 1999. But with
the success of Taobao starting a decade ago, Alibaba’s focus turned inward.
In 2010, the profile of international markets started to increase again with
the launch of AliExpress, connecting sellers in China with consumers
overseas. At first Alibaba expected the United States to be AliExpress’s key
market. But Alibaba discovered that America was a market with
sophisticated players, both online and offline. After the early
disappointments, then-Alibaba.com CEO David Wei instructed his team to
look at countries with the lowest efficiency in their retail sector.

Jack Magic comes to 10 Downing Street. Jack (left) regales a crowd, including British prime minister
David Cameron (second from left) and the author at a reception at 10 Downing Street in London on
October 19, 2015, shortly after Jack was named a member of the UK’s Business Advisory Group. 10

Downing Street

Without AliExpress even opening offices there, but with Russian and
Portuguese language capabilities added to the AliExpress website, Russia
and Brazil became early success stories. Demand from Alibaba’s customers
in Brazil at one point exceeded over three hundred thousand packages a
day, before a slowing economy and the weakening real hit the company’s
business there. Demand in Russia, especially for clothing and consumer
electronics, was so strong that AliExpress reportedly even broke the
Russian postal service, leading to the dismissal of its boss. Today Russia
accounts for a fifth of AliExpress’s sales.

In 2015, Alibaba appointed former top Goldman Sachs executive J.
Michael Evans as its new president, charged with leading international
development efforts. These include its growing presence in Western Europe,
where Alibaba aims to entice brands to target Chinese consumers through
its websites.58 At an event hosted in October 2015 by British prime minister
David Cameron at 10 Downing Street in London, Jack was named as one of
Cameron’s business advisers.

Alibaba announced it was upgrading its office in the city to become its
European headquarters, headed by Amee Chande, a former Walmart
executive. Alibaba is also opening a network of “business embassies” in
France, Germany, and Italy. Paris is headed by Sébastien Badault, formerly
of Amazon and Google; Milan is headed by Rodrigo Cipriani Foresio, who
previously worked at Buon Italia, an online food store; and Munich is

headed by Terry von Bibra, a former executive with leading German retailer
Karstadt. Alibaba’s growing presence in Europe brings it closer to the
headquarters of many of the brands most coveted by Chinese consumers.
Any success stories it can generate—bringing European brands to the fast-
growing consumer market in China—will no doubt also be an opportunity
to strengthen its hand with its most vociferous critics, like Kering, the
parent company of Yves Saint Laurent and Gucci.

The United States is also a key market for Alibaba’s overseas efforts,
mostly as the focus of its international investments. Alibaba has poured
hundreds of millions of dollars into high-profile companies such as Lyft,
Snapchat, Zulily, and a range of smaller players.59 But these investments
are more focused on absorbing new technologies or know-how to be
deployed in China than they are a concerted effort to break into the U.S.
market. The one Alibaba effort that did explicitly target the U.S. market,
11Main.com, was a conspicuous failure.60 Speculation by some analysts
that Alibaba would make a bold move in America, including an acquisition
of eBay or Yahoo, has so far proved off the mark. Instead Alibaba’s
emphasis remains firmly on developing cross-border trade.

Alibaba has been actively ramping up its own presence in the States,
setting up a string of four offices along the length of the West Coast: an
office just off Market Street in San Francisco, which houses Alibaba’s
international corporate communications team, headed by former PepsiCo
executive Jim Wilkinson;61 a new Alibaba Group office in San Mateo,
California, where Michael Evans is based; an office in Pasadena, California,
which serves as the U.S. home of Alibaba Pictures; and a small presence in
downtown Seattle, just one block away from the U.S. Bank building, where
Jack first logged on to the Internet back in 1995. In 2016 Alibaba is rolling
out new offices in New York City, bringer it closer to U.S. brands, retailers,
and advertisers, as well as in Washington, D.C., beefing up its lobbying and
communications capacity, headed by Eric Pelletier, former GE executive
and White House staff member.62

Despite its growing physical presence in the country, during a visit to
New York and Chicago in the summer of 2015, Jack dismissed talk of any
“Alibaba invasion” of America. He said he was often asked, “‘When are
you coming to invade America? When are you going to compete with
Amazon? When are you going to compete with eBay?’ Well, I would say,
we show great respect for eBay and Amazon, but I think the opportunity

and the strategy for us is helping small business in America go to China,
sell their products to China.”

On that same trip to the United States, Jack also discussed the strain of
running a public company. He complained that his life after the IPO was
more difficult than before, and that “[i]f I had another life, I would keep my
company private.” Some in the audience in New York expressed surprise
that Jack would voice regrets about listing so soon after Alibaba’s
blockbuster IPO. But this contrarian stance is vintage Jack.

From Philosopher to Philanthropist

Jack already has a reputation as China’s philosopher CEO, and increasingly
he is seen as a philanthropist and environmentalist, too. Six months ahead
of the 2014 IPO, Jack and Joe together pledged 2 percent of Alibaba Group
—from their personal holdings—to create a new Alibaba philanthropic
trust.63 The pledge was made in the form of stock options with an exercise
price of $25 (some $43 below the initial offering price), creating overnight
what became one of the largest philanthropic organizations in China. Jack
also committed to endow the trust with more of his personal fortune in the
future.64

The trust will focus primarily on China’s environment and health care—
two issues about which Jack has become increasingly vocal in recent years.
China’s rapid industrialization and urbanization have wrought havoc on the
country’s environment and people’s health. At a conference for
entrepreneurs in 2013,65 Jack delivered a call to arms, his message distilled
in an article later published by the Harvard Business Review: “Cancer—a
rare word in conversation thirty years ago—is now an everyday topic.” Jack
often talks of the growing incidence of cancer among his employees,
friends, and their families,66 including in his Q&A session with President
Obama. “Without a healthy environment on this earth, no matter how much
money you make, no matter how wonderful you are, you will have a bad
disaster.”

With his activism, and the symbolism of the lake he built on the
Wetlands headquarter campus, Jack is demonstrating that “[s]omebody has
to do something. . . . Our job is to wake people up.”

Jack isn’t shy about criticizing the old industrial model: “Chinese
people used to feel a sense of pride for being the world’s factory. Now

everyone realizes what it costs to be that factory. Our water has become
undrinkable, our food inedible, our milk poisonous, and worst of all, the air
in our cities is so polluted that we often cannot see the sun.” In his article,
Jack also took aim at the government’s inaction toward the environmental
crisis: “Before, no matter how hard we appealed to the privileged and the
powerful for attention on water, air, and food security issues, nobody
wanted to listen. The privileged still got their privileged water and
privileged food.67 But everyone breathes the same air. It doesn’t matter how
wealthy or powerful you are, if you can’t enjoy the sunshine, you can’t be
truly happy.” Like many of the other superrich in China, Jack bought
himself a pristine patch of paradise abroad. In 2015, with the help of the
Nature Conservancy, an environmental foundation founded by a former
Goldman Sachs banker, Jack purchased the $23 million Brandon Park estate
in New York State’s Adirondack Mountains; the estate is part of a holding
that once belonged to the Rockefeller family. In his interview with Jack at
APEC in Manila in November 2015, President Obama hailed Jack for
taking an interest in the environment: “I know that in addition to the work
that you have been doing with nonprofits recently, you have also been in
conversations with Bill Gates about the potential of really turbo-charging
investment in research and development around clean energy.” Shortly
afterward, on the eve of COP21, the UN conference on climate change in
Paris, Jack announced his support for the “Breakthrough Energy Coalition.”
Led by Bill Gates, Jack was joined by his investor Masayoshi Son and
former sparring partner Meg Whitman, along with Mark Zuckerberg and
Jeff Bezos, among the twenty-eight investors pledging to help fund research
into new technologies to reduce carbon emissions.

Health and Happiness

Jack’s focus on the environment and people’s health goes beyond a sense of
corporate responsibility: Alibaba has business aspirations, too. In 2014 the
company invested in CITIC 21CN, a Hong Kong–listed, pharmaceutical
data business. As it has since been renamed, Alibaba Health seeks to profit
from the inefficiencies of state-owned providers in the sector, including
making appointment bookings easier for patients, as well as making it easier
for doctors, clinics, and consumers to access information about and to order
pharmaceuticals. The focus on health care is one of two long-term

investment areas that Jack summarizes as the “2 H’s”: health and
happiness.68

In addition to making people healthier, he aims to make “young people
enjoy their lives, to be optimistic in the future. All the heroes in Chinese
movies die. In American movies, all the heroes survive. I ask people, ‘If all
the heroes die, who wants to be a hero?’” Why the interest, for an e-
commerce company, in entertainment?

True to his roots as a teacher, Jack often talks about taking care of the
needs of the younger generation. In an interview with Charlie Rose he
shared his view that, in China, “lots of young people lose hope, lose vision,
and start to complain.” Alibaba is increasingly active in areas that Jack
hopes could provide the answer: sports and entertainment.

In November 2015, Alibaba sponsored the first regular-season U.S.
college Pac-12 Conference basketball game in Shanghai, between the
University of Washington Huskies and the University of Texas Longhorns,
and announced it would host a game between Stanford and Harvard
universities a year later. Alibaba has also started to buy sports teams. In
June 2014, he made a $200 million investment in the Guangzhou
Evergrande soccer team, a deal negotiated, the team’s owner69 later
revealed, while Jack was drunk. Jack justified the investment: “I think not
understanding soccer doesn’t matter. . . . I also didn’t understand retail, e-
commerce, or the Internet, but that didn’t stop me from doing it anyway.”
He said he was not investing in soccer, he was “investing in entertainment.”

Alibaba is one of China’s leading investors in film, television, and
online video. The company’s biggest outlay in traditional media so far is its
$800 million investment in a Hong Kong–based film and TV studio70 that it
rebranded Alibaba Pictures. In 2014 Alibaba tapped Zhang Qiang, then vice
president of the powerful, state-owned distributor China Film Group, to
head up its entertainment business in China. Alibaba is also jointly
invested71 with Tencent in Huayi Brothers, a Beijing-based film and TV
studio and acquired cinema ticketing company Yulekei. But Alibaba has
made its biggest splash in Internet-based media, including investing in and
then72 acquiring Youku Tudou, a company founded by former Sohu
executive Victor Koo.73 More than 430 million people in China regularly
watch videos online, mostly on their mobile devices, with some shows
reaching larger audiences than the country’s state-owned terrestrial
broadcasters. The market used to be rife with pirated content, but today

major online video platforms like Youku are pushing hard to become the
local equivalent of Netflix, featuring programs such as popular Korean
dramas or hit shows from the United States like 2 Broke Girls. The $4
billion online video market—generated mostly by advertising, but also
some subscription revenue—is still a challenging place to make money
given the cost of licensing content. Youku Tudou never made a profit. Some
investors questioned the impact of the acquisition on Alibaba’s cost
structure, but Alibaba justifies it to compete with rival platforms from
Tencent, Baidu, and others. Also Alibaba had already announced plans to
launch its own streaming service, “Tmall Box Office,” or “TBO,” in
conjunction with cable TV player Wasu Media, in which Jack had already
invested personally. The idea behind TBO is to be as disruptive a player on
TV production in China as Netflix is in the United States. Already close to
half a billion people74 watch videos online on sites controlled by Alibaba,
Baidu, Tencent, and others. Yet in another sign of the limits imposed on
entrepreneurs when they encroach on its turf, in November 2015, the
government imposed new restrictions on the amount of imported content—
previously capped at 30 percent—they can offer on their platforms. In an
effort to promote more homegrown content, Alibaba is also looking to
explore new ways to finance shows, including harnessing crowdfunding
through a company it acquired called Yulebao.

With its newly established U.S. base in Pasadena, California, Alibaba
Pictures has big ambitions. Jack has said that he wants nothing less than to
make Alibaba “the biggest entertainment company in the world.” Leading
the charge for Alibaba’s overseas investments in entertainment is Zhang
Wei, appointed in 2015 as president of Alibaba Pictures. An alumna of
Harvard Business School, Zhang once hosted a business show on China
Central Television (CCTV) and worked as a media executive with CNBC
and Star Television before joining Alibaba in 2008. Alibaba Pictures has yet
to release its own film but it has already financed movies like Mission:
Impossible—Rogue Nation. In an interview with The Hollywood Reporter,
Zhang revealed the initial resistance from studios to working with Alibaba:
“The first thing everyone wonders is what an e-commerce company can
actually do for them. One of the biggest disconnects the studios face is that
they never really know, in a detailed, comprehensive way, who is coming to
see their movies. Even the filmmakers would probably like to know this.
How old are they? Where are they from? Do they have kids? What are their

other interests? What’s their living situation? What type of people are they?
We talk about demand-driven entertainment. Bringing the Internet deeper
into the entertainment business is the best way to solve that puzzle.” Zhang
added that Alibaba can utilize Alipay, used by many people to buy cinema
tickets online, to gain a greater understanding of moviegoers: “The movie
audience is much younger in China, as going to the movies is a lifestyle
change. The generation before went to karaoke. Now they go to the movies
as a primary source of entertainment.”

More tangibly, merchandising is an area that ties together e-commerce
and entertainment. Zhang explains, “In the U.S., theatrical makes up maybe
30 to 40 percent of revenue. In China, theatrical is the majority by far.
There’s so much value that has not been developed yet in the merchandising
space.” Zhang points to the Mission: Impossible tie-ins as an example,
selecting qualified merchants to manufacture licensed goods: “We came up
with about thirty products with Paramount’s merchandising team, sending
them designs and samples throughout the whole process. We showed many
directly to Tom Cruise as well, to make sure he was OK with how they
represented the Mission: Impossible brand. This is our value: connecting
both parties. In the past, how does a backpack maker in Zhejiang Province
connect with Paramount and Tom Cruise in such an efficient and reliable
way? It was just impossible.”

Inevitably, given Jack’s big plans in entertainment, Jack has been asked
whether Alibaba intends to buy a Hollywood studio. Viacom’s Paramount
Pictures is one rumored target, which as the studio behind Forrest Gump
might give Jack just the perch—or bench—that he craves in Hollywood. So
far Alibaba has denied its intentions to buy a studio outright: “Well, I don’t
think they want to sell. It’s better we partner. You can never buy everything
in the world.”

Yet barely a day goes by when Alibaba, or Jack himself, is not listed as
a potential buyer of a company, somewhere in the world. In December
2015, Alibaba confirmed it was purchasing the South China Morning Post
(SCMP), the main English daily newspaper in Hong Kong. Some saw the
purchase of the 112-year-old publication as a means for Jack to burnish his
credentials as a mogul. After all, Amazon founder Jeff Bezos had personally
acquired the Washington Post two years earlier. Was Jack simply following
suit?

Others saw signs of something deeper: that Jack was buying the paper to
curry favor with Beijing. Almost two decades after the United Kingdom
handed back the territory in 1997, the Chinese government is grappling with
a yawning political and social divide75 in Hong Kong. In 2014 the territory
was brought to a standstill by the Occupy Central movement (also known as
the Umbrella Revolution), a student-led movement protesting a lack of
democracy and other freedoms. Although the crisis ended peacefully, the
underlying tensions that fueled it remain ever present. The SCMP had
reported extensively on the protests. Critics speculated that Jack had offered
his services to bring the paper to heel—or even that he had no choice but to
comply with a directive from Beijing to do so.

Jack dismissed the conspiracy theories: “I have always encountered
speculation from other people. If I had to bother about what other people
speculated about, how would I get anything done?” He vowed to respect the
editorial independence of the newspaper: “They have an independent
platform and they can have their own beliefs.”

For the newspaper, the backing of a well-funded and influential business
group on the mainland has obvious attractions. Like many print
publications, the subscription-based business model of the SCMP, although
still profitable, has suffered in the face of free online content. In line with
Alibaba’s longtime commitment to offer services for free, Alibaba will
remove the newspaper’s subscription paywall, allowing wider distribution
and unlocking new business opportunities. In a Q&A with the newspaper,
executive vice chairman Joe Tsai explained, “Our vision for SCMP is to
build a global readership. . . . Even though some say the newspaper industry
is a sunset industry, we don’t see it that way. We see it as an opportunity to
use our technological expertise, and use our digital assets and know-how to
distribute news in a way that has never been done before.” In business
terms, the downside for the purchase is relatively limited, and a turnaround
could win Jack plaudits.

For Alibaba, the deal is not large in terms of money: They paid just over
$200 million for the business. Yet given the intense scrutiny that it invites,
the transaction is not without risks. In his Q&A Joe explained that if the
SCMP can help the world understand China better, this will also be good for
Alibaba—a company based in China but listed in the United States: “China
is important; China is a rising economy. It is the second-largest economy in
the world. People should learn more about China.” Yet in comments that

both revealed his frustration and emboldened those critical of the deal, he
added, “The coverage about China should be balanced and fair. Today when
I see mainstream Western news organizations cover China, they cover it
through a very particular lens. It is through the lens that China is a
communist state and everything kind of follows from that. A lot of
journalists working with these Western media organizations may not agree
with the system of governance in China and that taints their view of
coverage. We see things differently; we believe things should be presented
as they are. Present facts, tell the truth, and that is the principle that we are
going to operate on.”

Whatever Jack’s motivations for the acquisition are, by becoming a
newspaper proprietor in Hong Kong he is wading into deeper waters. Yet he
has never shied away from challenges before. Jack’s fame stems from the
story of how a Chinese company somehow got the better of Silicon Valley,
an East beats West tale worthy of a Jin Yong novel. His continued success,
though, is becoming a story of South versus North—of a company with
roots in the entrepreneurial heartland of southern China testing the limits
imposed by the country’s political masters in Beijing.

Since Xi Jinping became president of China in 2012, high-profile
entrepreneurs have found themselves increasingly subject to scrutiny and
sanction from the Chinese government. One high-profile real estate
entrepreneur, Vantone Holdings’s Feng Lun, even blogged—then later
deleted—the following message: “A private tycoon once said, ‘In the eyes
of a government official, we are nothing but cockroaches. If he wants to kill
you, he kills you. If he wants to let you live, he lets you live.’” The
temporary and still unexplained disappearance in December 2015 of Fosun
chairman Guo Guangchang—once feted as a “Warren Buffet of China”—
further illustrates those risks.

Jack is already the standard-bearer for China’s consumer and
entrepreneurial revolution. Now he is advancing on new fronts, such as
finance and the media, that have long been dominated by the state.

Forged in the entrepreneurial crucible of Zhejiang and fueled by his
faith in the transformative power of the Internet, Jack is the ultimate
pragmatist. By demonstrating the power of technology to assist a
government confronted with the rising expectations of its people for a better
life—from the environment, education, and health care to continued access

to economic opportunity—Jack aims to create the space for him to fulfill
even greater ambitions.

One leading Chinese Internet entrepreneur put it to me like this: “Most
people think of Alibaba as a story. It’s not just a story, it’s a strategy.”

Acknowledgments

For my father, David Clark, and my partner, Robin Wang.
I am deeply grateful for the inspiration, encouragement, and friendship

of Amy Tan, Lou DeMattei, and the whole team at Tandema.
I would like especially to thank Mei Yan, for her friendship and for

working so tirelessly on this project throughout, and my former
collaborators at Stanford University: Marguerite Gong Hancock, for
encouraging me to write this book, and Professor Bill Miller, for his
insights into what makes Silicon Valley tick.

Many thanks to our research assistant Chang Yu at Peking University,
now completing her Ph.D. in Hong Kong for which I wish her the best of
luck.

At BDA, Meiqin Fang was very generous with her time and guidance,
along with Dawson Zhang. Thanks also to Van Liu and Shi Lei. I’m very
grateful to Wilbur Zou, for his leadership at BDA, enabling me to devote
myself to this project. My assistant Joyce Zhao has always helped me keep
on track, no matter where in the world I was writing.

The maps were designed by the Beijing-based artist Xiaowei Cui.
My sincere thanks to those who provided invaluable assistance but who
preferred to remain anonymous. I’m very grateful to David Morley, for
giving his time so generously to share the Morley-Ma family story and
photos; Heather Killen, for her recollections and the photos from Yahoo
China’s early days; Alan Tien for his insights into the eBay/PayPal story in
China; and my friend and fellow monkey Roger Nyhus, for his warm
introduction to the Seattle community.
I’m grateful for the support of all the Alibaba pioneers and veterans who
helped me along the way, for the support of Jennifer Kuperman and team in
San Francisco, and for the generous time afforded by Joe Tsai and
colleagues in Hangzhou.

Thanks to my sisters, Terri, Alison, and Katie, for their support; to my
editor, Gabriella Doob, at HarperCollins; and to the team at Sandy Dijkstra
Literary Agency.

In memory of my mother, Pamela Mary Clark; my mentor, Professor
Henry S. Rowen, from Stanford University, who was cycling on campus
until the day he passed away in November 2015 at age ninety; and Miles
Frost, a young and talented entrepreneur I had only recently befriended
before his own story was cut so tragically short, at age thirty-one.

Notes

Introduction

1. The firm “BDA” originated as BD Associates, the name derives from
the first initials of my Chinese partner in the venture, Dr. Bohai Zhang,
and my first name, Duncan. The chairman of Morgan Stanley Asia,
Jack Wadsworth, and Theodore S. Liu, former head of the China
investment banking team, were instrumental in the launch of my
venture, by giving me a one-year retainer to set up shop in Beijing.

2. A disclosure, although I’m no longer a shareholder, under the “friends
and family” program, Alibaba did allow me to purchase some shares in
the Alibaba.com IPO in Hong Kong in 2007 and in the Alibaba Group
IPO in New York in 2014.

Chapter One: The Iron Triangle

1. Some caution should be exercised in assessing the final volume, given
that some goods might be returned for full refunds the next day by
customers—mostly for legitimate reasons, such as being damaged in
shipping or customers changing their minds—and the practice by some
merchants on the platform of inflating their own sales by hiring third
parties to boost their rankings (a phenomenon known as “brushing,”
which is discussed in Chapter 12).

2. Originating as Bachelors’ Day in the early 1990s when single students
launched an “anti–Valentine’s Day,” the date 11/11 was chosen to
symbolize single people.

3. For Alibaba’s “business-to-consumer” website www.tmall.com.
4. A term copyrighted by Alibaba in 2012 to distinguish its own festival

from the earlier common name for the festival of “baresticks holiday”
(guanggun jie), chosen for the resemblance of 11/11 to two pairs of
chopsticks.

5. In a TV interview with Emily Chang of Bloomberg West on Bloomberg
TV.

6. The phrase echoes the Chinese saying “wanneng de shangdi,” which
describes an omnipotent God.

7. The original meaning of the character “tao”—to pan for gold—had
fallen into obscurity.

8. Tmall carries some inventory in selected categories such as Tmall
Supermarket.

9. True to Jack’s passion for Chinese tradition, the name is an ancient
term for servants.

10. The unfortunately named in English ali wangwang.
11. First launched in 2008 as Taobao Mall, it later became tmall.com.
12. Tmall also charges an annual fee.
13. In fiscal year 2015.
14. Offering a limited selection of items, mostly at entry-level prices.
15. Groupon itself entered China in 2011, but quickly ran into trouble and

failed to gain traction.
16. Translates as “Super Good Deal.”
17. Twenty-eight square feet per capita in the United States, 16 in

Germany, and 14 in the United Kingdom.
18. In 2009.
19. The list details marketplaces that reportedly “engage in and facilitate

substantial copyright piracy and trademark counterfeiting.”
20. Including hiring its former general counsel.
21. Founded in Shenzhen in 1993 and sometimes described as the “FedEx

of China.”
22. The word cainiao originates in Taiwan and literally means “green

bird,” but it also has a military connotation, meaning “rookie soldier.”
23. Via 1,800 distribution centers and 97,000 delivery stations.
24. The company itself is registered in Shenzhen.
25. Shen, a close friend of Jack Ma, built his fortune in the China Yintai

Group, a mining, retail, and real estate concern that includes the sixty-
six-story Yin Tai tower in Beijing, which houses the city’s Park Hyatt
hotel, where Shen has regularly hosted Jack for social events. Shen also
controls a Hong Kong–listed retail subsidiary called InTime
Department Stores, in which Alibaba has invested $700 million.

26. A local network of couriers in first- to third-tier cities, supplemented in
less dense, and underdeveloped areas by more than 20,000 “self
pickup” stations.

27. A nationwide logistics network.
28. JD is short for Jing Dong, with Jing the word for “capital,” as in

Beijing, and Dong the character for “East,” but also derived from the
given name of the company’s founder, Liu Qiangdong, known in
English as Richard Liu. Liu founded his company in 1998 as a disk
drive company, then in 2004 launched a B2C website called
360buy.com, which he later rebranded JD.com.
29. 1.5 million square meters in total compared to Cainiao’s one million.
30. For orders placed by 11 A.M. and next day for orders placed by 11 P.M.
31. $778 billion in the year to June 2014.
32. A story explored in Chapter 11.
33. In 2014 it generated 11 billion yuan ($1.8 billion) in revenues.
34. Managed by brokerage Tian Hong Asset Management, which Ant
Financial had recently purchased.
35. Via Ant Financial.
36. In 2013, Jack Ma teamed up with two other Mas (although they are
unrelated): Pony Ma, Jack’s friend and CEO of Alibaba rival Tencent,
and Ma Mingzhe, the chairman of Ping An Insurance. Together they
launched China’s first and largest online insurer, Zhong An, signing up
more than 150 million customers within a year.
37. The system checks the faces of prospective customers against police
databases, although this has led to delays in the service’s rollout due to
concerns by regulators.

Chapter Two: Jack Magic

1. The Club Med–owning chairman of Fosun Group.
2. In a conversation with the journalist Charlie Rose.
3. Jan “Jens” Van der Ven.
4. A stand-up comedian in Shanghai reportedly sources some of his

material from Jack’s speeches.
5. Rivals like Baidu rely more on telesales.
6. To the China Daily, May 11, 2015.
7. Selected examples include: Chen Qi is the founder of juandou.com and

mogujie.com, was a product manager at Taobao, and worked on UED

(user experience design). Among Mogujie’s four founding team
members, three came from Taobao. Apart from Chen Qi, the other two
are Mogujie’s CTO Yue Xuqiang and CMO Li Yanzhu. Chen Xi is the
founder of LavaRadio, an ambient music radio station, worked at
Yahoo, and left about a year after Alibaba acquired Yahoo China.
Cheng Wei is the cofounder of Didi Dache and worked at Taobao’s
B2C unit. Gu Dayu is the founder and CEO of www.bong.cn, a smart
sports bracelet, and worked at Alibaba’s International User Experience
unit, Laiwang, and YunOS. Jiang Haibing was Alipay’s second
employee and is the founder of mabole.com, an online merchant
recruitment service company. Lai Jie is the founder of Treebear, a
commercial Wi-Fi provider. Alibaba led Treebear’s Series A round in
August 2014, taking a 10 percent stake. Lan Lan is the founder and
CEO of 1kf.com, an O2O service platform to find physical therapists
and masseurs, which was launched in March 2015. Li Liheng is the
cofounder and CEO of chemayi.com, a localized auto/life-service
platform. Li worked at Alibaba for eight years starting in 2002. The
other two cofounders of chemayi.com are also Alibaba veterans, Lin
Yan and Fan Qinglin. Li Zhiguo, the main developer of TrustPass, left
Alibaba in 2004 to found koubei.com, a classified listing and
community website. Alibaba invested in koubei.com in October 2006
and acquired the company in 2008, merging it into Yahoo China. Li,
whose nickname was “Bug Li” at Alibaba, moved to AliCloud in
February 2009 before quitting Alibaba again in September 2010. He
then became an angel investor and is now CEO of wacai.com, an
online financial management platform. Toto Sun (Sun Tongyu) is the
former president of Taobao and cofounder of www.hezi.com, a virtual
entertainment and education community for kids ages six to fourteen
and their parents. Wang Hao is the cofounder and CEO of xiaom.com,
a music streaming site. Xiaom was acquired by Alibaba in 2013,
becoming part of AliMusic. David Wei (Wei Zhe) is the cofounder of
Vision Knight Capital. Xu Ji is the founder and CEO of
mangguoyisheng.com, an app for community doctors. Xu was
Alibaba’s seventy-second employee. Wu Zhixiang is the founder and
CEO of ly.com, a travel-booking website. Wu worked in Alibaba’s
sales department for a year from 2001 to 2002. Ye Jinwu is the founder
and CEO of yingyinglicai.com, a financial product purchasing app and

worked at Alipay. Zhang Dou is the founder and CEO of
yinyuetai.com. Zhang Hang is the cofounder of Didi Dache. Zhang
Lianglun is the cofounder and CEO of mizhe.com and founder of
BeiBei, a maternal and infant product e-commerce site. Zhou Kaicheng
is the cofounder and CEO of Xingkong Qinang (www.xkqh.com), an
O2O piano class service platform. David Wei’s Vision Knight Capital
participated in its Series C funding in October 2015. Zhu Ning is the
founder of youzan.com, a platform to open WeChat stores, cofounder
of guang.com, an e-commerce site (already closed), cofounder of
cafebeta.com, and worked as chief product designer at Alipay.
8. itjuzi.com.

Chapter Three: From Student to Teacher

1. A “baozhang.”
2. The work involves five elements: taolu (solo hand and weapons

routines/forms), neigong and qigong (breathing, movement and
awareness exercises, and meditation), tuishou (response drills), and
sanshou (self-defense techniques).
3. “Benke.”
4. “Zhuanke.”
5. Although he probably coined the phrase much earlier.

Chapter Four: Hope and Coming to America

1. Classified as getihu (literally “single body units”) or individual
businesses, and siying qiye, or privately owned businesses.

2. Formerly named Lin’an, it was the capital of the Southern Song
dynasty from 1138 to 1276. In the thirteenth century, when Europe was
in the Dark Ages, Hangzhou is thought to have been the most populous
city on earth, with more than one and a half million inhabitants. Marco
Polo and famous Arab adventurer Ibn Battuta are both believed to have
visited the city.

3. China Post only guaranteed delivery in three days, but exporters needed
to get shipping forms to the port overnight. By taking the midnight
train from Hangzhou, Nie delivered the forms in time, charging
multiple exporters 100 yuan for each form but paying only once the 30
yuan needed for the train ticket.

4. Yunda, YTO, and ZTO.
5. As the Communist Party appointed both the senior bank officials and

the senior executives of the SOEs, for better or worse there was no
need for independent credit assessments and controls.
6. By the late 1990s Hong Kong and other overseas Chinese entrepreneurs
had set up more than 50,000 factories in Guangdong Province, which
has links to a diaspora of overseas Chinese numbering 20 million
people. After Deng Xiaoping’s southern tour, which established a
number of special economic zones, including Shenzhen, the overseas
Chinese, including many rich entrepreneurs, provided a ready supply of
financing and export markets. Guangdong’s location, adjacent to Hong
Kong, and the world’s busiest shipping routes gave it a further edge
over Zhejiang.
7. Written by journalist Zhou Jishan.
8. According to a September 1995 article in Hangzhou Daily.

Chapter Five: China Is Coming On

1. One of Jack’s early cards lists him as “marketing director.”
2. Starting in the late 1980s, Dr. Walter Toki at the Stanford Linear

Accelerator Center played an instrumental role, after he reached out to
the Chinese-born American physicist and Nobel Prize laureate T. D.
Lee about establishing an Internet connection with scientists in China.
3. Via a satellite uplink from an AT&T ground station at Point Reyes,
California.
4. In its first edition.
5. Called the “Golden Dove Project.”
6. John Nathan Hosteller, a Republican member of the House of
Representatives from Indiana, and Democratic senator Bill Bradley of
New Jersey.
7. The Qianjiang Evening News.
8. A sample listing from the site illustrates its simple nature:
“Hydrofluoric acid with different concentrations packed in plastic
drums of 25kgs” accompanied by the contact information for the
Ningbo Material General Corporation.
9. Including a Hangzhou Daily article that appeared on October 18, 1996.

Chapter Six: Bubble and Birth

1. To The Economist.
2. CIECC had been established two years earlier to pursue “EDI”

(Electronic Data Interchange) projects for MOFTEC.
3. She would later become chair, CEO, and Communist Party secretary of

Chinese state-owned telecom manufacturer Putian. There she would
actively promote China’s own standard for 3G mobile telephony, called
TD-SCDMA, which failed to gain market acceptance.
4. Jasmine Zhang from Yinghaiwei asserts that Jack chose the name
because it sounded like Ariba.com, another high-profile e-commerce
website at the time.
5. Both domain names were registered under Jack Ma’s mother, Cui
Wencai. On August 17, 1999, Cui transferred the ownership to Alibaba
Ltd.
6. Alibaba.com was launched in April 1999, replacing the earlier
alibabaonline.com and alibabaonline.com sites that had gone online in
January. The company would later describe the site as a “trial” when
unveiling an upgraded site at a formal launch ceremony the following
October.
7. At China Pages, Jack had been joined by his wife, Cathy, Toto Sun
(Sun Tongyu), Wu Yongming, James Sheng (Sheng Yifei), Ma
Changwei, Lou Wensheng, and Simon Xie (Xie Shihuang), who had
met Jack when working for Dife. Others from Hangzhou who had
joined him in Beijing included Lucy Peng (Peng Lei, who quit her job
as a teacher in Hangzhou when she married Toto Sun), Han Min, Jane
Jiang (Jiang Fang), Trudy Dai (Dai Shan), and Zhou Yuehong.
8. For forty hours of access from ChinaNet.
9. Nearly all of the advertisers were technology firms, such as Intel, IBM,
Compaq, Microsoft, Legend, and Founder.
10. Or “New Wave” (xin lang in Chinese).
11. Jack Hong, Benjamin Tsiang, and Hurst Lin. Sinanet had some users in
Taiwan but struggled to make headway in China, and was blocked at
times by the Chinese government.
12. From Dow Jones, Intel, and Morningside, an affiliate of the Hong Kong
property developer Hang Lung run by Gerald Chen.
13. Only Raymond Lei had studied overseas, at Purdue University in
Indiana, where he received a master’s degree in computer science.
14. Xiao Ao Jiang Hu in Chinese.

15. According to Chen Xiaoping, a professor at the University of
Washington in Seattle.

16. Cai Chongxin, or in Taiwanese romanization, Tsai Chung-Hsin.
17. His father, Dr. Paul Tsai, is the founder of the Tsar & Tsai Law Firm,

whose origins in 1965 make it one of the oldest partnership law firms
in Taiwan.
18. Alumni include the playwright Thornton Wilder (Our Town), the
former CEO of Walt Disney Michael Eisner, the singer Huey Lewis,
former White House press secretary Jay Carney, and most recently
Song Andong, the first Chinese player drafted by the NHL. Joe is now
a trustee of the school.
19. His ancestral home was Huzhou, near Hangzhou.
20. In 1996, Joe married Clara Wu, a Stanford- and Harvard-educated
professional born to Taiwanese parents in Kansas.
21. Galeazzo Scarampi, chief executive of Investor Asia Ltd.
22. As one shareholder, Raymond Lei, had left the company the eighteenth
slot was available for him. Eighteen is a lucky number in China, but
Joe decided to leave it vacant, and he became employee No. 19.
“Nineteen has always been my lucky number. My lacrosse jersey
number was nineteen. I was born on January nineteenth.”
23. A Cayman Islands company registered in June 1999 called Alibaba
Group Holding Limited.
24. Joel Kellman at Fenwick & West helped set up some meetings.
25. The name “8848” was chosen because it represented the height of
Mount Everest in meters.
26. Touting the first foreign-held license to operate Internet services in
China.
27. He also wrote the seminal 2004 article, which later became a book,
about the “long tail” as it applies to retailing online.
28. After receiving an MBA from Wharton, Yip had built up and sold a
systems integration company in the United States before moving to
Hong Kong and joining CIC.
29. These had been registered by a Hong Kong–born, UCLA computer
science graduate named James Chu.
30. Despite Xinhua’s backing, his site china.com was repeatedly blocked in
China by rival agencies.

Chapter Seven: Backers: Goldman and SoftBank

1. Ted and I took turns writing the “Beijing Byte” column about tech
developments in China, taking over from Kristie Lu Stout, who is now
an anchor at CNN International in Hong Kong.

2. The initial wave of foreign employees included a number of young
China adventurers. One of the earliest, employee number forty, was
David Oliver, who grew up on a farm on the South Island of New
Zealand and had been working in China for a few years. After he saw
Jack give a speech in Singapore in March 1999, David was so
impressed that he flew to Hangzhou, and by September he had started
working for Alibaba. He joined the company at a very low salary by
Hong Kong standards—$20,000 a year—so low that he was later
unable to afford to exercise his healthy allocation of options, priced at a
mere five cents. Belgian Jan Van der Ven joined the company after
building a number of trade websites in Shenzhen before moving to the
factory town of Dongguan, Guangdong. Another early recruit, number
fifty-two, was Brian Wong. Originally from Palo Alto, California,
Brian is now a vice president in the chairman’s office, constantly at
Jack’s side on his frequent trips overseas. Alibaba then added a tier of
MBAs including Todd Daum and Sanjay Varma. Alibaba organizes
occasional gatherings of the earliest employees, issuing hats displaying
the order of precedence of joining. (Jack is #001.)

3. Jack’s wife, Cathy, played an instrumental role in the international
operations of the company for a number of years. Annie Xu, a UC
Berkeley grad from Shanghai, has worked as general manager for
Alibaba in the United States since May 2000. Abir Oreibi oversaw the
company’s European business for eight years from 2000.

4. “Pre-money.”
5. Involving a “participated preferred feature.”
6. She was a member of the bank’s principal investment area (PIA) team

launched in Asia by Henry Cornell. In addition to large investments in
China such as in Ping An Insurance in 1994, after the bank had made
some successful tech investments in Silicon Valley, Shirley was
involved in placing small bets on tech companies in Asia, too. Shirley
was named managing director at the bank the following year, at age
thirty-two.

7. Investing in a company called ChinaRen.com, founded by three
Stanford returnees. ChinaRen was later acquired by Sohu.

8. In 2015 he became the comanager of Joe Tsai’s multibillion-dollar
family investment office.

9. Adding to the company’s existing Taiwan and Hong Kong sites.
10. Here at the company’s tenth anniversary.
11. At Alibaba, Aliren (literally “Alibaba People”) are employees who

have stayed with the company for over three years.
12. Initially alibaba.com.cn, in 2010 becoming 1688.com.
13. Asia Business Conference.
14. In a 2003 interview with Zhejiang Satellite TV, he said, “Ten years ago

I applied for Harvard twice and was rejected. I always wanted to go to
Harvard and talk to the people there. . . . Until today I don’t care too
much about the academic qualifications from elite universities around
the world. I think Hangzhou Teachers College is pretty good.”
15. Originally from Shanghai, Wu had studied computer science in the
United States and joined Yahoo early, in 1996.

Chapter Eight: Burst and Back to China

1. One of them was Edward Zeng (Zeng Qiang), the founder of a chain of
Internet cafés. PR savvy, attracting a visit from First Lady Hillary
Clinton, Zeng claimed to have built the “leading e-commerce enabling
service in China.”

2. Nobel Peace Prize recipient Liu Xiaobo has also described the Internet
as “God’s present to China. It is the best tool for the Chinese people in
their project to cast off slavery and strive for freedom.”

3. The “CCF” (China-China-Foreign) structure was set up to allow
foreign investment into the new SOE telecom operator China Unicom.
But Wu considered it a threat to his authority and declared the $1.4
billion of foreign investment illegal.

4. Joseph Tong (Tong Jiawei).
5. Appropriately enough its former CEO now runs a travel-related

business in the region.
6. It had conducted a scaled-down “backdoor” listing on the Nasdaq in

April 2000.
7. Kwan had worked for fifteen years at GE Medical Systems.

Chapter Nine: Born Again: Taobao and the Humiliation of eBay

1. The event would be the first in a series of annual conferences Alibaba
still holds to this day, which they refer to as the “AliFest.” Jin Yong
was the first of a parade of VIPs that has since included President Bill
Clinton, Kobe Bryant, Arnold Schwarzenegger, numerous CEOs,
celebrities, and a parade of Nobel and Pulitzer prize winners.

2. A move that for a few days appeared to imperil the VIE structure:
Wang lost his job in Sina’s offshore-listed company but retained key
licenses in China, then agreed to relinquish control of those, too.

3. Dangdang, run by Peggy Yu and her husband, Li Guoqing, was backed
by VC investors including SoftBank. Joyo’s CEO was Diane Wang, but
the company was a spin-off from the software maker Kingsoft, which
was engineered by Lei Jun, famous today as the founder and CEO of
the high-profile Chinese smartphone manufacturer Xiaomi.

4. Neither Dangdang nor Joyo would become the Amazon of China, but
Joyo would at least become Amazon in China. In 2004, Joyo was
acquired by Amazon for $75 million.

5. Known in Chinese as yìqùwang, whose meanings include “interesting
exchanges network.”

6. Since 1949.
7. Four hundred thousand dollars in angel backing from investment

bankers George Boutros, Bill Brady, and Ethan Topper, who had all
worked at Morgan Stanley with legendary deal maker Frank Quattrone.
8. All her possessions were in New York, but she didn’t go back to pick
them up—they would stay in storage for more than a year until
EachNet could afford to ship them to China.
9. From Whitney, AsiaTech, and Orchid.
10. There were more than a dozen, including ClubCiti and Yabuy, founded
by veterans from Federal Software who had backed 8848.
11. Whitman later attributed the delay to eBay’s costly site outage in the
United States the summer before.
12. With the purchase of a controlling stake in Internet Auction Company.
13. eBay paid $9.5 million for Taiwan auction site operator NeoCom
Technology.
14. Behind the United States, Japan, Germany, and the United Kingdom.
15. eBay took two seats on EachNet’s board. Bo held one of the other
three.

16. The contrast between eBay’s travails in China, where it had made an
outright acquisition, and its triumph in Latin America, where it had
made a minority investment in 2001 in local player Mercado Libre,
would speak for itself. Today Mercado Libre is the most successful
commerce player in Latin America, worth more than $6 billion, and
eBay owns over 18 percent.

17. Initially through a joint venture with Alibaba in which SoftBank
invested $50 million, with the additional investment in the form of $30
million in convertible notes that they could later convert into ordinary
shares.

18. Shou Yuan.
19. “Taobao” was not the first choice of name for the new business. The

original name was “Alimama,” subsequently used for the company’s
online marketing technology platform.
20. Toto Sun was known as “the God of Wealth” (or “Cai Shen” in
Chinese). His staff liked to call him “Uncle of Wealth.” Sun hoped that
the nickname would bring good luck to this new addition to the
Alibaba family. Zhang Yu, a vice president in charge of operations, was
known as Yu Yan, one of the leading female roles in Jin Yong’s novel
Demi-Gods and Semi-Devils.
21. For the impact of her regular publication The Internet Report, first
released in 1995 in the run-up to the groundbreaking Morgan Stanley
IPO of Netscape Communications.
22. In trying to imagine what an itinerant merchant of the Yiwu variety
would look like in the United States, I thought of a movie from my
childhood, the 1987 film Planes, Trains and Automobiles, starring John
Candy and Steve Martin. Candy plays Del Griffith who is trying, and
failing, to make a living traveling the country selling plastic shower-
curtain rings.
23. Individual buyers—and sellers—who dominated the platform were less
likely to pay taxes such as VAT, putting business-to-consumer websites
at a disadvantage.
24. In 2004.
25. MIT, Sloan Management Review, 2012, Puneet Manchanda (University
of Michigan) and Junhong Chu (National University of Singapore
Business School).

26. “In the introduction phase, the platform’s growth is primarily seller-
driven: seller growth induces buyers to register, which in turn leads to
more sellers to register, which further encourages more buyers to
register, etc.”

27. Meaning “Ali prosper.”
28. Senior Vice President Bill Cobb, Chief Financial Officer Rajiv Dutta,

and deal specialist Bill Barmier.
29. At the firm’s annual analyst day on January 20, 2005.
30. Like eBay’s acquisition of EachNet, this too ended in failure, resulting

in its sale at a $600 million loss in 2009 to investors that included
Silver Lake Partners, Index Ventures, and Andreessen Horowitz.
Embarrassingly for eBay, just eighteen months later this team sold
Skype to Microsoft for $8.5 billion.
31. Along with Tom Online itself, which was taken private shortly after.

Chapter Ten: Yahoo’s Billion-Dollar Bet

1. With David Filo.
2. In the first nine months of the year.
3. Launching gbchinese.yahoo.com (“GB” standing for guo biao, or

national standard) and another chinese.yahoo.com in the complex
characters used by Chinese speakers outside the mainland.
4. For a period of fifty years under the Basic Law, part of Deng
Xiaoping’s “One Country, Two Systems” formula.
5. Qu Weizhi.
6. Later CEO of the Chinese online video company Youku.
7. Acquired in 1998 by AOL for $407 million.
8. A market that would dramatically reverse the fortunes of NetEase and
propel the rise of another online games specialist based in Shanghai,
called Shanda (Shengda in Chinese), which was listed on the Nasdaq in
2004.
9. Today they represent $18 billion in online revenues, bigger than
China’s $5 billion movie box office, and accounting for 13 percent of
all Internet revenues in the country.
10. Including major portals like Sina, Sohu, and Tom.
11. By the end of 2009, Baidu had captured 63 percent of the Chinese
search market, almost double Google’s 33 percent share. In March
2010, when Google decided to quit the Chinese market amid bitter

accusations of hacking and the pressures of censorship, Baidu would
reign supreme with over 75 percent of the market by the end of the
year.
12. Zhou had accused the CNNIC of lacking a legal foundation.
13. Called Yisou.
14. To improve its advertising business by matching it more closely with its
users’ search queries, Yahoo made a $1.3 billion purchase of Overture
in 2003.
15. Qihoo 360, which went public on the Nasdaq in March 2011, would
become best known for its free antivirus software, which would bring
Zhou once again into conflict with Baidu and others, including Yahoo.
In China, and among some former Yahoo colleagues in the United
States, Zhou Hongyi developed a reputation as “the father of malware
in China,” a label he vigorously disputed. In December 2015, Zhou led
a consortium of investors to take Qihoo back into private hands for
$9.3 billion, with plans to delist the company from the New York Stock
Exchange in the first half of 2016.
16. In May 2015, Yahoo injected its 384 million shares in Alibaba, worth
more than $33 billion, just shy of Yahoo’s total valuation, into a new
entity, “SpinCo,” in an effort to avoid paying over $10 billion in U.S.
taxes.
17. The gathering was an off-site summit hosted by the Hua Yuan Science
and Technology Association (HYSTA), a group of Silicon Valley–
based entrepreneurs and engineers mostly hailing from China, ahead of
their annual conference at the Santa Clara Convention Center.
18. The Yahoo-Alibaba transaction has proved so successful that many
have claimed responsibility for teeing up the Jack-Jerry meeting at
Pebble Beach. Jack has credited, among others, Wu Ying from
UTStarcom, Liu Erfei of Merrill Lynch, and Deng Zhonghan of
Vimicro Corporation. Joe Tsai says, “Of course eighteen different
people took credit for putting together that meeting. It was the Hua
Yuan event [that] took credit. Everybody did.” He added, “If you knew
each other . . . you were at the same conference.”
19. Traveling to Beijing with Jerry were Yahoo CEO Terry Semel and CFO
Sue Decker and corporate development executive Toby Coppel.
20. A twenty-four-year veteran of Warner Bros., where he rose to become
chairman and co-CEO.

21. Li, a protégé of Jiang Zemin, was in charge of propaganda for the
Communist Party, a post he was appointed to in 2002. He served in that
capacity for a decade, overseeing the extensive system of censorship
for the Internet.

22. The company had listed the year before and had a market cap of more
than $2.2 billion, with revenues of $165 million.

23. Instead, he dreamed of turning his company into the Disney of China,
having earlier that year taken a 19.5 percent stake in Sina as the first
step in a hostile takeover (which never materialized).

24. After selling part of its 40 percent stake in Taobao to Alibaba for $360
million.

25. In a talk at the Computer History Museum in Mountain View,
California, hosted by HYSTA, whose conference had helped tee-up the
original deal.

26. Yahoo also bought out a SoftBank investment in Taobao for $360
million, half of which SoftBank then used to acquire more shares in
Alibaba, in addition to another $30 million to exercise convertible
notes it had purchased in 2003.

27. The amount was so large that, on hearing the news of the investment,
one CEO of a smaller e-commerce player recounted to me, “I thought
the news must be fake, many people did. One hundred million dollars
would have been a big number, but one billion dollars? I had never
imagined such a large number.”

28. Now CEO of Shazam.
29. Once he had established Qihoo 360, using the proceeds of Yahoo’s

investment, Zhou set about building a product designed to help users
uninstall the very product he himself had built at 3721, which had since
been rebranded Yahoo Messenger, but which he now described as
malware that should be removed.
30. [email protected].
31. The Beijing State Security Bureau issued a Notice of Evidence
Collection and requested “email account registration information for
[email protected], all login times, corresponding IP
addresses, and relevant email content from February 22, 2004,” from
Yahoo China’s offices in Beijing.
32. Including Human Rights Watch, the Committee to Protect Journalists,
and Reporters Without Borders.

33. Who had already taken flak from Alibaba’s rival eBay for committing
to the event.

34. The House Foreign Affairs Committee.
35. After fielding an enquiry from the U.S. embassy about the background

of Google’s decision, I found myself being quoted later on in a cable
leaked by Wikileaks. Rather disappointingly, no one took much notice.

Chapter Eleven: Growing Pains

1. A number of Alibaba veterans left the firm, including cofounder Toto
Sun, CTO John Wu, and COO Li Qi, whom Jack had first worked with
at China Pages.

2. Maggie Wu (Wu Wei), who still serves today as the company’s CFO.
3. Before starting his own private equity fund, Vision Knight Capital.
4. And its domestic site alibaba.com.cn.
5. And hold for two years.
6. Peter Woo’s Wharf, Robert Kuok’s Kerry Properties, and the Kwok

family’s Sun Hung Kai Properties.
7. The offering priced Alibaba’s shares at more than 106 times its 2007

forecast earnings versus forty-one times for Google, or forty-five times
for its old rival Global Sources.
8. A five-bedroom, 7,000-square-foot property for which he paid more
than $5,400 per square foot. He purchased the penthouse apartment
complete with private roof garden from developer Kerry Properties,
one of the cornerstone investors in the IPO.
9. The previous year Alibaba.com generated $170 million in revenues and
$28 million in net profit.
10. On its Alimama platform.
11. In September 2008, Alibaba launched the first phase of its “Big Taobao
Strategy,” integrating Taobao.com and the online advertising platform
Alimama to build “the world’s largest e-commerce ecosystem.”
12. After a four-and-a-half-year life span as a publicly listed company, in
June 2012 Alibaba.com was absorbed back into parent Alibaba Group,
with shareholders paid the same price as in the original 2007 IPO.
13. Valuing Yahoo’s shares at a 61 percent premium over the market price.
14. Estimated at over 99 percent.
15. Including Carl Icahn. But Yahoo’s efforts to strike a search deal with
Microsoft’s rival Google killed any prospect for the deal.

16. Who was still the representative for Yahoo on Alibaba’s board.
17. Gady Epstein at Forbes.
18. The sale for about $100 million netted them a pretax paper gain of $98

million. The sale released cash Bartz badly needed to shore up investor
support.
19. In 2009 and 2010.
20. Elvis Lee.
21. Alibaba said that majority ownership was transferred in 2009 to comply
with regulations, then full ownership transfer completed in 2010.
22. Governing Internet payment, mobile phone payment, bank card–related
services, issuance and acceptance of prepaid card payments, and
currency exchange.
23. The talks had been initiated with Jerry Yang and were continued by the
two companies’ CFOs before breaking down that summer.
24. In an interview on July 7, 2011, with China Entrepreneur magazine
(Zhongguo Qi Ye Jia).
25. In a June 2011 interview at the Wall Street Journal’s All Things Digital
conference in California.
26. By June 2015, when Alipay was valued by private investors as high as
$50 billion, the $6 billion cap on a stake then worth more than $18
billion would look like a very raw deal for Alibaba investors like
Yahoo.
27. Three months earlier Alibaba had announced it would take its Hong
Kong–listed subsidiary Alibaba.com back into private hands, paying
the same price for the shares as the company had listed in 2007 (a 60.4
percent premium on the shares). This cleaned the way for the IPO of
the whole Alibaba Group in 2014.

Chapter Twelve: Icon or Icarus?

1. Losing in the process the long-standing arrangement to hosting U.S.
presidents visiting New York City.

2. A year earlier Jack had become chairman of Alibaba, with Joe Tsai
becoming executive vice chairman. Jonathan Lu would last barely two
years in the job. Both he and his successor, Daniel Zhang, would face
the unenviable task of trying to fill Jack’s shoes.

3. Including any impairment of the “trusted status of the ecosystem” or
Alibaba’s “culture, mission, and values.”

4. The ranks of the Alibaba Partnership can be refreshed through the
admission of new partners each year. Those appointed typically have
more than five years’ service, and their election is subject to the
approval of 75 percent of all partners. A Partnership Committee of five,
including Jack and Joe, administers the structure.

5. Drawn from Alibaba’s finance and logistics affiliates.
6. Jack, Lucy Peng (Peng Lei), Trudy Dai (Dai Shan), Jane Jiang (Jiang

Fang), Jin Jianhang, and Eddie Wu (Wu Yongming).
7. The new members are: Yongfu Yu, president of Alibaba’s mobile

business unit and its advertising platform Alimama; Junfang Zheng,
Alibaba Group’s deputy CFO; Ying Zhao, vice president of Ant
Financial; and Lijun Sun, general manager of rural Taobao
marketplace. This is the first time that Alibaba has added new members
to its partnership since the IPO in September 2014. In its prospectus,
Alibaba said that to be eligible for election, a partner candidate must
have “continued service with Alibaba Group and/or our related
companies or affiliates for, in most cases, not less than five years,” in
which case Yongfu Yu is an exception. Yu was the chairman and CEO
of UCWeb, a mobile Internet technology and service provider that was
acquired by Alibaba in 2014.
8. The Securities and Futures Commission.
9. In 2007 in Hong Kong, one-quarter of the Alibaba.com IPO shares
went to individual investors.
10. After New York, Alibaba’s global road show took in Boston, San
Francisco, Hong Kong, Singapore, and London. Management divided
up into two teams, each fronted by Jack or Joe.
11. As the company approached the one-year anniversary of the IPO,
concerns grew about the expiration of the “lockup”—shares that key
investors were not permitted to sell for the first year—of 1.6 billion of
its 2.5 billion shares.
12. In November 2013, Zhejiang Alibaba E-Commerce Company Limited
was restructured to become Alibaba Small and Micro Financial
Services Group. Jack saw his shareholding reduced from 80 percent to
about 8 percent in the new company, or no greater than his
shareholding in Alibaba Group.
13. Variously described as a “white paper” or as merely minutes of a
meeting.

14. Sina Weibo.
15. The head of the SAIC’s department of online commerce.
16. And one day after Yahoo announced it was creating a new structure—

which it hoped would minimize its tax liabilities—to spin off a 15
percent stake in Alibaba.
17. Revenue rose 40 percent to $4.22 billion, but came in below the
average estimate of $4.45 billion, according to Thomson Reuters.
18. Zhang is the son-in-law of Gu Mu, a former key aide to Deng Xiaoping
who had accompanied him on his tour of southern China, opening the
door to entrepreneurs.
19. At a dinner in London in October 2015.
20. Which given anticorruption campaigns requires careful curation.
21. Xi had recently finished up a stint as party secretary of Zhejiang
Province.
22. China has a reputation as a wild west for a lack of respect for
intellectual property rights, justified by the rampant piracy in the
market. But it isn’t due to a lack of laws. Since its accession to the
World Trade Organization in 2001, China has set up an elaborate
framework of trademark, patents, and copyright laws. A survey
conducted in 2015 by the American Chamber of Commerce in China
found that 85 percent of respondents believed China’s IPR enforcement
had improved in the last five years, but 80 percent were concerned
about ineffective enforcement.
23. Or selling a range of fake items on four occasions.
24. Where merchants are suspected of committing a criminal offense,
Alibaba will escalate the case to the local Administration of Industry
and Commerce or to the police, which has an officer stationed at
Alibaba headquarters who is dedicated to tracking the sale of illicit
goods, or the sale of illegal products such as guns.
25. Tmall merchants are required to furnish more evidence of their
authorization to trade from brand owners.
26. Taobao’s and Tmall’s search algorithms are heavily driven by historical
trading volumes.
27. Known as the “Big Four Unions,” based in Hangzhou and other
locations.
28. VIP Shop, Melishuo, and Mogujie.
29. Jumei.

30. Dangdang and Amazon.cn.
31. Womai and Yihaodian, invested by Walmart.
32. 19.9 percent. Suning, shelling out 14 billion yuan—$2.3 billion—

became a 1.1 percent stakeholder in Alibaba.
33. Also known as Jingdong, formerly 360Buy.
34. In the run-up to JD’s IPO, Alibaba rival Tencent took a 15 percent stake

and folded its own struggling e-commerce offerings into the company.
35. Wei xin (micro message) in Chinese.
36. By Andreessen Horowitz.
37. WeChat’s popularity owes much to its personalized feel, tailored to the

needs and mind-sets of China’s mobile masses. But users can control
the information they share with strangers, and unlike the Twitter-like
Weibo the total number of followers on WeChat is capped at 5,000.
Building on Weibo’s success as a home for celebrities and brands,
WeChat also offers more than 8.5 million public accounts.
38. A modern twist on the traditional seasonal offerings of money to family
and friends.
39. The initiative ran into headwinds in 2012 when its launch partner, the
Taiwanese hardware company Acer, pulled out. This was reportedly
following pressure exerted from Google, which leveled accusations that
Alibaba was deploying a “noncompatible” version of Android.
40. Alibaba acquired an 18 percent stake in Sina Weibo in 2014. But by
this point Weibo had lost much of its luster to WeChat.
41. UCWeb.
42. Weilidai (“a tiny bit of loan”).
43. Meaning “quickly hail a cab.”
44. Meaning “beep beep, hail a cab.”
45. Uber was next to step up to the subsidy plate, shelling out an estimated
$1 billion in China in 2015 to win over drivers and customers, aided by
a $1.2 billion fund-raising exercise.
46. Some foreign observers make the mistake of believing that “Shanghai
is New York City and Beijing is Washington, D.C.,” but this vastly
understates Beijing’s importance as a business hub—and understates
the fact that local government in Shanghai is much more of a force in
local business than in Beijing.
47. Even recruiting talent from Shanghai for Alibaba’s Hangzhou
headquarters can be a challenge, as the office lies some distance from

the city’s train station. To attract and retain Shanghai-based talent,
Alibaba offers special buses to and from Shanghai each weekend to
ferry employees, who stay in Hangzhou only four nights a week.
48. Describes the twin-pronged strategy comprising the “Silk Road
Economic Belt,” a series of land routes from China across central Asia
to the Middle East, Africa, and Europe, complemented by “The
Twenty-First-Century Maritime Silk Road” to reinforce existing sea
trade routes.
49. General partner.
50. Yunfeng’s name in English translates as “cloud and the cutting edge of
a sword.” The combination of Jack’s first name “Yun” and David Yu’s
given name “Feng.”
51. Yu first rose to prominence with the sale of his display advertising
company Target Media to rival Focus Media in 2006.
52. Other partners include Shen Guojun from Intime Investment, Shi
Yuzhu from gaming company Giant Interactive, Liu Yonghao of New
Hope Group, Wang Yusuo from ENN Group, Jason Jiang from Focus
Media, Xu Hang from Shenzhen Mindray Medical, Chen Yihong from
China Dongxiang Group, Zhou Xin from e-House, Wang Jianguo from
Five Star, Zhou Shaoxiong from Septwolves, Wang Xuning from
Joyong Holdings, and Zhang Youcai from Unifront Holdings.
53. One example is the September 2015 announcement that Alibaba had
established Alibaba Sports Group along with Yunfeng Capital and Sina
(the parent of Sina Weibo, in which Alibaba is an investor) in an effort
to “reshape China’s sports industry through the Internet.”
54. Cofounder David Yu, for example, also serves on the board of Alibaba-
invested Huayi Brothers Media Group. His mother, Wang Yulian, is
also a partner at Yunfeng and the largest shareholder in Ant Financial,
after Jack and Simon Xie, holding a reported 4.6 percent stake.
55. As a General Partner.
56. As a Limited Partner.
57. The military retreat of the Red Army from 1934 to 1935.
58. As a sign of its commitment to boosting the sale of imported products
in China, Alibaba branded Singles’ Day in 2015 as the “11/11 Global
Shopping Festival.” Yet the company has a long way to go to secure a
sufficient range of imported items to compete with the overseas sites
that many Chinese shoppers have already discovered.

59. Including the mobile search player Quixey, Amazon Prime competitor
Shoprunner, game developer Kabam, and mobile messaging app Tango.

60. Building on its earliest U.S. investments in e-commerce companies
Auctiva and Vendio, Alibaba launched its own U.S. website,
11Main.com, in an effort to reach directly to American consumers. But
the effort failed, and in June 2015 Alibaba disposed of its interest.

61. He also previously served in the George W. Bush administration,
including as senior adviser on foreign affairs to Secretary of State
Condoleezza Rice.

62. Deputy assistant to the president for legislative affairs, serving George
W. Bush.

63. Since Alibaba donated 0.3 percent of its annual revenue to a company
foundation, but the new trust is much larger.

64. Presumably to include the returns on his Yunfeng Capital investments.
65. In the northeastern city of Yabuli.
66. On social media in China, there has been intense speculation about the

state of health of Jack’s own family members, but Jack has not spoken
publicly about this.
67. The Communist Party runs special farms, off-limits to the public and
media, to ensure high-quality food supplies for its senior leaders, who
also receive privileged access to the best medical care, provided by
military hospitals.
68. To Bloomberg TV’s Emily Chang in November 2015.
69. Real estate billionaire Xu Jiaxin.
70. ChinaVision.
71. 3.6 billion yuan ($565 million).
72. In a deal announced in October 2015 valuing Youku at more than $5
billion.
73. Victor founded Youku after working as COO of Sohu. Youku acquired
its largest competitor to become Youku-Tudou.
74. 461 million people in mid-2015 according to CNNIC.
75. In 2014, the territory had been brought to a standstill by the Occupy
Central movement, or Umbrella Revolution, a student-led protest
against the lack of genuine democracy and other freedoms. Although
the crisis ended peacefully, the underlying tensions that fueled it remain
ever present.

About the Author

DUNCAN CLARK, a former Morgan Stanley investment banker and
fluent Mandarin speaker, has lived and worked in China for over twenty
years. He heads a team of more than one hundred at BDA China, the
investment advisory firm he founded in Beijing in 1994. An expert on
China’s Internet sector, Clark is a former Visiting Scholar at Stanford
University, where he welcomed Jack Ma onstage as a keynote speaker,
along with the leaders of other leading Chinese Internet firms including
Baidu, Sina, and Tencent.

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